OmniVision Technologies’ Innovation Could Take It to New Highs

Image sensor maker OmniVision Technologies (NASDAQ: OVTI) is flying high since it released better-than-expected third-quarter results in late February. OmniVision has gained more than 15% since it reported, and it seems investors might enjoy more gains after the company issued a strong outlook. In addition, the company is making some good product-development moves to keep the momentum going. However, with bigger players such as Sony (NYSE: SNE) and Samsung (NASDAQOTH: SSNLF) as competitors, can OmniVision continue doing well? Let's try to find out.

Innovation is the keyFocus on product innovation is the reason why OmniVision is doing well this year. Its PureCel sensor products have gained momentum as they deliver strong pixel performance, consume less power, and are cost effective. OmniVision is engaged in developing and improving its pixel technology beyond 1.1 microns. Its advanced pixel technology is already driving growth, and PureCel is a good example of this.

OmniVision is also expanding its product designs and applications for low-cost smartphones with its wafer-level camera technology. In addition, the company is making some moves in the automotive market. OmniVision has launched a new sensor for based on its high-dynamic-range technology. This technology will include features such as drive-assistance applications that could lead to better customer demand going forward.

Targeting wearables and smartphonesOmniVision has also unveiled an ultra-compact global shutter sensor for computer vision applications to enhance its digital imaging solutions business. The low-power OV6211 chip is the world's smallest global shutter sensor, designed for applications such as notebooks, tablets, mobile phones, wearable electronics, gaming devices, and security systems. This is the industry's first sensor to capture 400x400 square resolutions and video at 120 frames per second.

OmniVision is also targeting the market for wearable computing devices with this chip, since wearable devices use multiple image sensors for gesture control and eye-tracking applications. OmniVision is using its RGB IR technology to create solutions for this market.

This is an important move by OmniVision, since the wearables market is expected to see solid growth. According to IDC Research, the market for wearable devices is expected to grow from just 19 million units in 2014 to a whopping 112 million units in 2018, opening up a huge opportunity for the company.

OmniVision also expects to gain from the rollout of 4G LTE handsets in the Chinese market. The company expects that handset manufacturers will adopt high-resolution cameras in both the budget and high-end smartphone markets. Since OmniVision claims to have a diversified product portfolio that addresses both of these segments, it seems to be in a good position to benefit from sales of new handsets in China.

A look at the competitionAll these product development moves sound fantastic. However, investors shouldn't ignore the threats that OmniVision faces from bigger competitors such as Sony and Samsung.

Sony is a leading player in the market for image sensors, with one-third of the market share. From 2012 to 2013, Sony's revenue from image sensors went up 30%. In addition, Sony also supplies its sensors to Apple and seems to have taken away share from OmniVision, which commands just 14.4% of the image sensor market, according to Techno Systems.

Also, considering that Sony is a much larger player in this space, the company can produce a large number of chips at a low cost due to economies of scale. So, Sony is quite capable of pricing OmniVision out going forward.

Samsung recently introduced ISOCELL, its new advanced pixel technology for CMOS image sensors. With this new technology, Samsung is looking to deliver a wider, clearer viewing experience without any loss in the field of view. Also, Samsung says that this sensor "can capture the details more accurately in both bright and dark areas, even in high-contrast lighting conditions."

Samsung was third in terms of market share in image sensors, behind Sony and OmniVision, but innovations such as these can help the Korean company move up to the next position going forward.

Bottom lineOmniVision's positive outlook for the ongoing quarter indicates that its new products are being received well by customers. The company knows that product innovation is the only way through which it could survive in this competitive market, so it is aggressively focusing on this part. Driven by this innovation, OmniVision could go higher in the future.

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